The End of Cheap Talk about Poverty Reduction.

How can poverty reduction be improved and at what cost? Available evidence suggests that social investment strategies and employment policies are important but not sufficient (Cantillon, 2011; Cantillon & Vandenbroucke, 2015). In order to reduce the number of people below the relative atrisk ofpoverty threshold of the EU, countries must develop not only effective employment policies but also ensure adequate social protection. This implies increasing social transfers for working and nonworking households, while taking care not to enlarge unemployment traps. In this paper we show that this is not a cheap option. We calculate the hypothetical minimum cost of closing the poverty gap while maintaining the existing average participation incentives at the bottom of the income distribution for three countries, namely Belgium, Denmark and the United Kingdom (UK). Results show that this would require 4.2 percent, 7.6 percent and 5.7 percent of aggregate household disposable income in Belgium, Denmark and the UK, respectively. These amounts are

around two times the budget needed to just lift all disposable household incomes to the level of the poverty threshold. The exercise presented in this paper highlights that the eradication of poverty in Europe would require substantial income redistribution on top of the current social protection systems. The results also illustrate the important impact of the level of low wages on the costs of closing the poverty gap and suggest that in some countries, the magnitude of work incentives might be reconsidered. These findings clearly point to the fact that one cannot achieve poverty reduction without addressing rising income inequality, downward pressures on low wages and the issue of adequate work incentives.